Taxing Futures

This research report - Taxing Futures - highlights the economic and fiscal implications of changes to Inheritance Tax Reliefs (BPR and APR) for UK family businesses and farms. It shows how family-owned businesses are responding to the policy change and models the economic impact of a reduction in investment and jobs across the country. It highlights the needs for an urgent and full review of the changes to BPR and APR to prevent further unintended consequences for UK family businesses.

Taxing Futures The economic and fiscal implications of changes to BPR & APR for UK family businesses and farms

June 2025

CONTENTS

Foreword ........................................................................................................................................................................................................................................................... 4

Executive summary..................................................................................................................................................................................................................................5

1. Introduction...............................................................................................................................................................................................................................................7

2. The effects of changes to BPR and APR on UK family-owned businesses and farms..................................................................9

3. The impacts on the UK economy and public finances..........................................................................................................................................19

4. Regional and local impacts..........................................................................................................................................................................................................27

5. Conclusion..................................................................................................................................................................................................................................................30

Appendix 1 - Methodology.................................................................................................................................................................................................................32

Appendix 2 - Input / Output model.............................................................................................................................................................................................34

Appendix 3 - Economic impact of changes to BPR & APR on the UK’s parliamentary constituencies................................35

Acknowledgements................................................................................................................................................................................................................................. 53

FOREWORD

This research, conducted independently by CBI Economics, provides robust, quantitative data and evidence as to the economic impact of these policy changes, and the actions owners of family businesses and farms will take. Far from increasing tax receipts into the Treasury and stimulating the economic growth the Government is trying to deliver, the changes to BPR and APR in the October 2024 Budget achieve the opposite; a reduction in tax receipts to the Treasury of almost £1.9 billion, a reduction in GVA of nearly £15 billion, and the loss of more than 200,000 jobs across the UK over the course of this Parliament. The analysis shows the enormous impact this policy will have across the UK. No industry, sector, region or constituency will be immune from these effects. Parts of Government are looking at how to boost regional growth and create opportunities in left-behind communities, but this report shows how the decision by HM Treasury will actively damage and undermine those efforts. FBUK, and others, have called for a reversal of this policy decision and full consultation with our Members. We have repeatedly tabled amendments, concessions and alternative proposals. All have been rejected by the Government. Along with the trade association that participated in this research, we urge the Government to consider the findings of this report and to work with us constructively and collaboratively to deliver what we all want – economic growth and a stable policy environment that encourages and incentivises investment.

For centuries, family ownership of businesses and farms has been commonplace in the UK. Within the diverse landscape of the UK economy,

family businesses have been a dominant force, helping to build Britain for generations. Long term in nature, they are often the largest employer in a given community and frequently the largest contributor to community and charitable activities. In recent decades, family businesses and farms have been supported by a stable policy environment around ownership that has given confidence to business owners to make long-term investments in the future of their business, in their employees, and in the communities where they operate. Business Property Relief (BPR) and Agricultural Property Relief (APR) are central to that. They are policies designed for a specific purpose: to prevent the forced sale or break-up of family-owned businesses when the owners die. For decades, they have quietly, and without controversy, achieved this. In doing so, they have ensured the long- term growth and success of those businesses and employment security for their workers. The Autumn Budget 2024 brought this stable policy environment to an end. The changes announced to BPR and APR place material uncertainty over the future of many family-owned enterprises. In the absence of any Government economic impact assessment or risk analysis of this policy change, Family Business UK (FBUK), supported by more than 30 independent trade associations representing every sector of the UK economy, sought to fill the gap.

Neil Davy, CEO, Family Business UK

EXECUTIVE SUMMARY

Inheritance tax (IHT) is a tax charged on the estate of someone who has died. For the owners of, and shareholders in family businesses, whose personal wealth is retained and invested in the company, important reliefs from IHT exist to ensure business continuity when ownership of the business and assets are passed upon death. Business Property Relief (BPR) and Agricultural Property Relief (APR) are long-standing policies which have offered 100% relief from IHT on qualifying business and agricultural assets. They support the model of family business by giving owners confidence to develop long-term strategies that promote investment, create employment and support structured succession planning in multi-generational businesses. The Government’s Autumn Budget in 2024 introduced changes to how BPR and APR will be applied to family- owned enterprises. From April 2026, 100% relief from IHT on qualifying assets will be limited to the first £1 million of claims. Above this threshold IHT will be applied to assets at a reduced rate of 50% (effectively a 20% rate of inheritance tax). These changes will have a material impact on family-owned businesses and farms. This report, commissioned by Family Business UK (FBUK), supported by a consortium of other trade associations and conducted independently by CBI Economics, aims to quantify the effects of this policy change. It builds on previous work in late 2024 and early 2025, providing more detailed analysis and additional information on the impact of these changes on local areas and specific sectors. The analysis shows that, given the unique shareholding structure and continued investment in the business’s capital assets, the policy change will lead to widespread behavioural change among family business owners who could be forced to reduce investment, withdraw capital, dispose of assets or shareholdings, or sell or shut the business entirely to release cash to fund an IHT liability. These actions will weaken the competitiveness of the businesses themselves and the wider UK economy by reducing employment opportunities for working people and disrupting long-term sources of wealth creation in local communities.

Key findings from CBI Economics analysis, backed by a comprehensive survey of more than 4,100 family-owned businesses and farms, suggest that between October 2024 and April 2030 the policy change could result in:

• A significant reduction in investment: 55% of BPR-affected and 49% of APR-affected businesses have paused or cancelled planned investments, resulting in an average decrease in investment of 16%.

• Reduction in turnover: the anticipated changes are expected to lead to an average reduction in turnover of 9% amongst family businesses and farms.

• Fewer jobs: just under half of family businesses and farms foresee a reduction in headcount or have paused recruitment, with an average reduction per firm of 9%.

• Community impacts: 15% (BPR) and 12% (APR) of businesses have cut charitable donations or community activities, which will impact vital local initiatives.

• Financial pressures: two-thirds (68%) of affected businesses have already sought legal advice, with many expecting to continue doing so going forward.

These changes are expected to result in a Gross Value Added (GVA) reduction of £14.8 billion between October 2024 and April 2030, an amount almost equivalent to the manufacture of motor vehicles in the UK (£15.7bn GVA).

Moreover, the changes will put 208,500 full-time equivalent (FTE) jobs at risk during this Parliament. For scale, there are approximately 204,000 people employed in construction in London.

The Government projects that the changes to BPR and APR will raise £1.4 billion over the term of this Parliament. However, CBI Economics analysis of the reduction in investment, economic activity and lower employment could instead produce a net fiscal loss to Government of £1.9 billion. Such is the extent of family ownership of businesses and farms, that the impact of this change will be felt across the country and by every sector of the economy. Agriculture and horticulture firms are expected to be most affected, with an average reduction in turnover of 11%, followed by real estate, accommodation and food services (9%), and construction (9%) – sectors which are not only economically significant but also vital to the UK’s prospects for long-term economic growth and security of food production. While the impacts of proposed changes to BPR and APR are expected to be felt across the UK, their severity varies significantly by region, posing particular risks to local economies where family businesses are major employers and investors. Survey findings indicate that the East of England, Yorkshire and the Humber, and the Midlands could see the steepest reductions in investment and turnover from BPR changes, while Scotland, the North West, and North East are forecast to experience the largest employment losses. For APR, the North East and Northern Ireland stand out as most exposed, with businesses expecting reductions in investment and turnover of more than 12%, and employment falling by more than 10% on average. Local modelling underscores the disproportionate impacts on certain communities. Areas such as Carlisle, Blyth and Ashington, Whitehaven and Workington, and parts of Cornwall and Aberdeenshire are projected to experience some of the largest declines in GVA and FTE jobs as a share of their local economies. Carlisle, for example, faces an estimated loss of 560 jobs. These findings highlight the critical role family-owned businesses play in local economies and the risk that policy changes could exacerbate regional inequalities – undermining efforts to boost economic resilience and level up prosperity across the UK. These findings highlight the need for an urgent review of the changes to BPR and APR to prevent unintended consequences for UK businesses. Furthermore, the Government must carefully consider the impacts to avoid compromising its number one mission of delivering sustained economic growth and improving living standards for working people.

1. INTRODUCTION

CBI Economics was commissioned by Family Business UK (FBUK) to independently estimate the economic and fiscal impacts of the October 2024 Budget changes to Business Property Relief and Agricultural Property Relief for family businesses and farms, deepening the existing analysis conducted in a previous report published in January 2025. These changes are expected to affect the economy as a whole. To build a robust evidence base and highlight the behavioural changes expected amongst family-owned enterprises, CBI Economics built on the previous analysis through a larger-scale study of family businesses and farms. A number of UK trade associations supported FBUK and participated in the research. 1 Information garnered through this process informed the inputs to economic and fiscal modelling. Assessing the economic and fiscal impact of Autumn 2024 Budget changes to Business Property Relief and Agricultural Property Relief

Overview of the sector

Family businesses play a crucial role in the UK economy. According to research conducted by the Centre for Economics and Business Research for the Family Business Research Foundation, family businesses make up more than nine out of every 10 private sector firms in the UK and provide employment for nearly 16 million people; equivalent to 57% of total private sector employment in the UK. In 2023, family businesses generated £985 billion in Gross Value Added (GVA), equivalent to 59% of the total private sector contribution, and it is estimated that family businesses contributed £422 billion of taxation to the UK Exchequer through tax receipts. 2 It is important to note the regional differences in family ownership rates and how the impacts of changes to BPR and APR may be spread across the UK. For example, London has the lowest rate of family ownership in the UK despite being the second most populated region in the country. The Family Business Research Foundation report has estimated that family firms account for 97% and 96% of firms in the primary and construction sectors respectively, 3 underlining their significant importance.

Beyond their economic contributions, family businesses offer unique socio-economic benefits. Family businesses pride themselves on taking a long-term view as enduring stewards of their business and employees.

Purpose and need for the research

During the Autumn Budget 2024, the Government announced changes to inheritance tax reliefs available on the business and agricultural assets of family businesses and farms. The Government cited the change as one of many tough decision it had taken to plug the gap in the public finances. 4 It was amongst a wider package of tax rises that will increase the annual tax take by more than £41 billion by 2029-30. 5 From April 2026, full (100%) relief from inheritance tax on qualifying business and agricultural assets will be limited to the first £1 million of claims. For amounts exceeding this threshold, IHT will be charged at a reduced rate of 50%, resulting in an effective inheritance tax rate of 20%.

1 The names of these organisations are listed at the end of the report 2 Centre for Economics and Business Research (2025) State of the Nation: UK Family Business Sector in 2023; available at: State of the Nation: UK Family Business Sector in 2023 3 The ‘Primary’ classification refers to businesses in agriculture, forestry, and fishing, in mining and quarrying, in electricity, gas, steam and air conditioning supply, and in sewerage, waste management, and water supply.

Immediately following the Budget in 2024, FBUK commissioned research to demonstrate the impact that changes to BPR could have on affected businesses and the wider economy. 6 To build on this research FBUK, supported by a consortium of trade associations, commissioned this report to deepen the evidence base and broaden the scope to include both BPR and APR. 4,147 family businesses and farms (with more than 25% of the business owned by one or more members of the same family) were captured by this survey, collecting insights on how they will behave and the measures they will take to mitigate the changes to BPR & APR. The Office for Budget Responsibility (OBR)’s static costing estimates that the changes to BPR and APR will raise £1,765 million over a four-year period but assigns the policy a ‘high’ uncertainty rating, stating: “the main driver of uncertainty is the behavioural response to the measure … this in turn adds uncertainty to the modelling of the behavioural responses”. The primary data in this analysis helps to fill the information gap identified by the OBR, providing compelling evidence to show how business owners will change their behaviour, and the cost of these changes to family businesses and farms, their suppliers, customers, employees, the UK economy and the country’s public finances. The significance of the negative impacts calls into question how well these policies align with the Government’s election manifesto, which emphasised the importance of sustained economic growth saying it’s “the only route to improving the prosperity of our country and the living standards of working people.” FBUK is clear that BPR and APR are not ‘loopholes’ or ’tax breaks’ for wealthy individuals, as they have been characterised. Rather, they are deliberate and well-designed tax policies that support a unique model of business ownership that delivers investment, growth and employment, incentivising family business owners to innovate, take risks, and future-proof their companies. Conversely, capping BPR and APR at £1 million will result in business owners having to extract cash from their business, or divest business assets to cover future IHT liabilities, thereby imposing an indirect tax on the business. Consequently, the policy change places UK family businesses at a competitive disadvantage by imposing increased cost, uncertainty and an additional business tax which is not faced by any other model of business when ownership changes.

Methodology

To assess the potential impact of the changes to BPR and APR, CBI Economics surveyed more than 4,200 businesses and farms likely to be affected between October 2024 and April 2030. Of these, 4,147 were identified as family-owned enterprises, with at least 25% of the estate held by family members. The survey focused on anticipated behavioural responses and economic impacts – specifically changes in investment, turnover, and headcount. These self-reported changes in turnover underpin the economy-wide modelling. The fiscal analysis incorporates not only projected IHT receipts, but also wider losses in tax revenue – including production and income taxes – from family businesses, their supply chains, and employees. Full survey details and methodology are provided in the appendix.

4 BBC (2024) Row over ‘black hole’ in public finances continues. [Available at: https://www.bbc.co.uk/news/articles/c9qljw7915yo (Accessed on: 05/11/2024)] 5 HM Treasury (2024) Autumn Budget 2024: Fixing the Foundations to Deliver Change 6 Family Business UK and CBI Economics (2025). Taxing Family Business Futures: The economic and fiscal implications of reform to Business Property Relief for UK family businesses. Available at: https://www.familybusinessuk.org/wp-content/uploads/2025/01/FBUK_BPR_HR.pdf

2. UNDERSTANDING THE EFFECTS OF IHT REFORM ON UK FAMILY-OWNED BUSINESSES AND FARMS In the immediate aftermath of the Autumn Budget 2024, CBI Economics surveyed 234 family businesses to gauge reactions to the announced changes to BPR. In February 2025, CBI Economics conducted a larger-scale, comprehensive survey to capture the effects of both BPR and APR changes, receiving 4,147 responses from family businesses and farms. Questions focused on the economic and fiscal impacts of the announcement, aiming to address the OBR’s evidence gap around behavioural responses and consequences for UK family businesses. This survey considered not just the expected changes once the reforms are enforced from 2026, but also the business response and mitigating actions ahead of the policy change coming into force in April 2026.

Key findings include:

• Widespread investment cuts: across both BPR and APR, more than 60% of businesses anticipate reducing investment by more than 20%, with average investment declines of 15.8% (APR) and 15.5% (BPR). • Businesses have already reduced investment and employment: around half have paused investments and up to 23% have reduced headcount due to BPR and APR changes.

• Business restructuring is a growing concern: around 1 in 5 are considering downsizing under both BPR and APR, with up to 12% contemplating a sale.

• Accelerated gifting: in response to anticipated changes, 39% (APR) and 46% (BPR) plan to gift shares or assets to family members before April 2026. In doing so they may be unaware of anti-forestalling measures designed to offset this. • The North and devolved nations are expected to bear the brunt of the changes: the North East, Northern Ireland and Wales forecast the steepest declines in investment, turnover, and employment.

• Anecdotal evidence confirms broad impact: open-ended responses reveal growing concerns over business succession, community involvement, and long-term viability.

A large proportion of family businesses have already taken measures to mitigate changes to APR and BPR

The majority of businesses surveyed indicated that changes to BPR announced in the Autumn Budget have had a significant impact on their strategic decisions. Key trends include: • Investment paused or cancelled: 55% have paused or cancelled planned investments; 44% expect to continue holding back future investment. • Workforce impacts: 23% have reduced headcount or frozen recruitment, with many intending to maintain these measures. • Business downsizing or exit: 22% are considering downsizing, and 12% are contemplating selling their businesses. • Community and charitable cuts: 15% have withdrawn from charitable giving or community engagement due to cost-cutting pressures. • Legal and financial planning: 68% have sought legal advice in response to the changes, with many expecting to continue relying on professional guidance. Figure 1: What measures have you already taken/might you take to mitigate any potential impacts of changes to BPR (% of respondents, N = 3,357)

I HAVE

I WILL

66%

Take(n) legal advice Pause(d) or cancel(led) planned investments Reduce(d) headcount or pause(d) recruitment Defer(red)/reduce(d) investment Gift(ed) shares or assets to family members Reduce(d) or cancel(led) charitable contributions

68%

55%

44%

41%

38%

23%

16%

46%

15%

16%

6% 7% 6%

Downsize(d) business

22%

Intentionally hold(held) back business/asset growth Take (took) out insurance to cover future IHT costs Sell (sold) assets and/or shares to non-family Close(d) business and liquidated

24%

13%

0% 0% 0%

Sell (sold) off business entirely Relocate(d) business assets overseas

12%

Other (please specify) Not sure/don’t know

(Do) nothing/no change

Source: CBI Economics Survey (2025)

We surveyed respondents about BPR and APR separately, but results show that many are affected by both APR and BPR. The impact of changes to APR closely mirrors that of BPR:

• Cautious investment behaviour: Among those affected by APR, 49% have already paused or cancelled investments; 43% expect to continue this approach through April 2026.

• Workforce measures: 17% have reduced headcount or paused recruitment, with 20% planning to maintain these actions.

• Succession planning: 39% of businesses plan to gift shares or assets to family members before April 2026, aiming to secure succession under current relief rules, but may be unaware of anti-forestalling measures to offset this.

• Legal and financial response: 68% have sought legal advice, reflecting the ongoing financial and planning uncertainty.

Figure 2: What measures have you already taken/might you take to mitigate any potential impacts of changes to APR (% of respondents, N = 3,140)

I HAVE

I WILL

68%

65%

Take(n) legal advice Pause(ed) or cancel(led) planned investments Defer(red)/reduce(d) investment Reduce(d) headcount or pause(d) recruitment Gift(ed) shares or assets to family members Reduce(d) or cancel(led) charitable contributions Downsize(d) farming operations Diversify(ied) into non-agricultural activities Take (took) out insurance to cover future IHT costs Draw(n) out funds or dividends from the farming business Sell (sold) agricultural land/share to non-family investors Sell (sold) part of the farm or assets you own Lease(d) out land or other assets Sell (sold) off part of the farm or assets you let out Sell (sold) off the farm entirely Close(d) off the entire farm and liquidate(d) assets

43%

49%

33%

34%

20%

17%

14%

39%

12%

13%

11%

21%

11%

5% 5%

20%

11%

2% 2% 2%

14%

12%

5% 5%

0% 0% 1%

7% 6%

(Do) nothing/no change Not sure/don’t know Other (please specify)

Source: CBI Economics Survey (2025)

The resulting impacts for family businesses are likely to include a fall in investment, turnover and headcount

The anticipated impact of changes to BPR on business investment are considerable. 64% of respondents expect their investment levels to decline by more than 20%, while a further 20% predict a reduction of between 10% and 20% . Overall, the average projected decrease in investment due to BPR changes stands at 15.8%. Turnover is also expected to be affected as businesses divert investment to succession planning and liquidity preservation, leading to scaled-back operations. More than one-third of respondents (35%) foresee a reduction in turnover in excess of 20% , with a further 20% of respondents anticipating a moderate decline between 10% and 20% . Taken together, these responses reflect an average expected reduction in turnover of 7.7%. Businesses are also reducing investment in their workforce. 20% of respondents anticipate a significant reduction in headcount of more than 20% , although a further 27% expect a more modest decrease. On average, employment is projected to decline by 10.1% as a direct consequence of the BPR being capped at £1 million.

Figure 3: The expected impact of the changes to BPR on family businesses (% of respondents, main business indicators, N=3,120)

64%

42%

35%

29%

27%

24%

20%

Significantly decrease (more than 20%)

Som e w hat decrease (1 0%t o 20%)

Remain unchanged (+/-1 0%change)

Somewhat increase (1 0%t o 20%)

Significantly increase (more than 20%)

Inv est m e n t

T ur nov er

N u mb er of e mp l o yees

Source: CBI Economics Survey (2025)

The projected effects of changes to APR closely mirror those of BPR. Nearly two-thirds of respondents (64%) anticipate that the changes will lead to a reduction in investment of more than 20%, while a further 20% expect a moderate decrease of between 10% and 20% . Only 10% believe their investment levels will remain stable or increase. This results in an average projected fall in investment of 15.5%. Turnover will also be affected. Around 32% of respondents predict a fall of more than 20% , with just under one-third forecasting a decline between 10% and 20%. The average expected decrease in turnover is 7.5%. Employment levels are similarly vulnerable. 22% of respondents anticipate a reduction in employee numbers greater than 20%, with another 22% expecting a smaller decline between 10% and 20% . On average, employment is projected to fall by 10.6% as a result of the APR changes.

It is worth noting that amongst businesses affected by APR, 86% have fewer than 10 employees, indicating that even modest reductions in numbers may represent a significant proportion of their workforce.

Figure 4: The expected impact of the changes to APR on family businesses (% of respondents, main business indicators, N=2,765)

70%

64%

60%

50%

44%

40%

32%

29%

28%

30%

22%

20%

10%

Signi fi cantly decrease (more than 20%)

Somewhat decrease (10% to 20%)

Remain unchanged (+/-10% change)

Somewhat increase (10% to 20%)

Signi fi cantly increase (more than 20%)

Investment

Turnover

Number of employees

Source: CBI Economics Survey (2025)

UK impacts from BPR changes are significant across all regions

• Investment: survey responses reveal some regional disparities, but analysis suggests that reductions in investment are forecast to be most severe in Yorkshire and the Humber and the East of England where businesses anticipate an average decrease of approximately 17%. • Turnover: the East of England again emerges as one of the most affected areas, with respondents forecasting an average decline of 10.6%. The West Midlands and East Midlands also report notable expected losses, with average reductions of 10.3% and 10.2% respectively, suggesting a widespread strain on revenue streams across the Midlands. • Employment: responses indicate particular challenges across northern regions of the UK. Businesses in Scotland expect employment numbers to fall by 10.4% on average, while the North West and North East of England report similar declines of 10.2% and 10.1%, respectively. Overall, the survey highlights a pattern: while impacts are felt nationwide, in certain regions – particularly in the North and East – businesses are expecting sharper declines in investment, turnover, and employment. The modelling in Section 3 takes these regional differences into account to assess the economic implications for local areas in terms of Gross Value Added (GVA) and Full-Time Equivalent (FTE) jobs.

Figure 5: Regional change in investment, turnover and employment in reaction to BPR changes

Investment

Turnover

Employees

-15.5%

-7.2%

-17.1%

-10.6%

-8.6%

-10.4%

Source: CBI Economics Survey (2025)

North East and Northern Ireland are expected to be hit hardest by APR changes

• Investment: survey findings point to Northern Ireland and the North East as the regions likely to experience largest reductions, with both anticipating average decreases of 17.7%. Not far behind are Yorkshire and the Humber and the West Midlands, expecting declines of 17.2% and 17.0% respectively. • Turnover: the largest anticipated impacts are again seen in Northern Ireland (-12.7%), the North East (-12.2%) and Wales (-12.2%). These figures reflect heightened vulnerability in both devolved nations and northern regions, where businesses expect greater revenue losses. • Employment: the North East is expected to see the largest projected reduction in workforce numbers at -12.2%. This figure is notably higher than the next most affected region, the North West, where employment is expected to fall by 10.3% on average. Overall, the North East is facing the sharpest declines across both investment and employment, while Northern Ireland and Wales could experience significant economic impacts.

Figure 6: Regional change in investment, turnover and employment in reaction to APR changes

Investment

Turnover

Employees

-12.2%

-10.3%

-15.4%

-12.7%

-8.1%

-17.6%

Source: CBI Economics Survey (2025)

Multiple sectors reported to be feeling the impact of BPR and APR changes

When assessing the sector-specific impacts of changes to BPR, survey results point to an economy-wide impact with notable declines in investment across nearly all sectors. However, agriculture and horticulture is expected to see the greatest loss in turnover, with an average reduction of 11% . This is followed by the real estate activities,accommodation and food service activities, and construction sectors , each also projecting turnover declines of around 9% . Employment levels show similar trends. Construction, manufacturing and accommodation and food service activities are expected to experience the most significant reductions in workforce with each forecasting average declines of approximately 11%. The effects of changes to APR follow a similar pattern with the agriculture and horticulture sector projected to see the steepest drop in investment, averaging a 17% decline. This sector is also expected to experience the most substantial reduction in turnover at 12%. In terms of employment, the accommodation and food service activities sector anticipates the highest decrease, with a projected reduction of 12%.

Figure 7: Sectoral breakdown of BPR effects on investment, turnover and employment

Investment

Turnover

Employees

-2%

-4%

-6%

-10% -8%

-12%

-14%

-16%

-18%

Accommodation and Food Service Activities

Agriculture & Horticulture

Construction Manufacturing Other Service Activities

Real Estate Activities

Wholesale & Retail Trade; Repair of Motor Vehicles and Motorcycles

Source: CBI Economics Survey (2025)

Figure 8: Sectoral breakdown of APR effects on investment, turnover and employment

Investment

Turnover

Employees

-2%

-4%

-6%

-8%

-10%

-12%

-14%

-16%

-18%

Real Estate Acti viti es

Agri cul ture & Horticulture

Accommodation and Food Service Activities

Source: CBI Economics Survey (2025)

Anecdotal insights reveal risks to growth and investment from inheritance tax changes

To capture insights that may not have been reflected in the structured survey questions, respondents were invited to answer open-ended questions. Specifically, they were asked: “Are there any specific challenges or opportunities you foresee for your business or farm due to changes to BPR and/or APR?” The responses opposite provide a deeper, more nuanced understanding of how these reforms are affecting businesses and farms.

Anecdotal insights reveal risks to growth and investment from inheritance tax changes

“Currently it is becoming sensible to reduce stress and work for someone else. Family businesses are not worth the hassle and stress with the continuing pressures.”

East Midlands, Manufacturing

“We are starting manufacturing in the US and potentially moving head office / ownership overseas.”

West Midlands, Manufacturing

“It’s inevitable that if a family shareholder dies, the only course of action will be to sell a significant chunk of the business to a big corporate thus ruining the business we’ve built, the team, the culture, and the livelihoods of my team who have helped develop it as the cost will be too large for other independents to buy.”

Yorkshire and the Humber, Wholesale and retail trade

Farming businesses concerned about APR are also reconsidering investments and community contributions

“We have historically been very active in the local community. We were planning on providing land and building a football pitch for the benefit of underprivileged young people. This initiative has now been cancelled as we must provide for IHT liabilities.”

South East, Agriculture & Horticulture

“We have paused all projects that were not going to be delivering a significant return, for example environmental and biodiversity improvements, while we understand the implications.”

Scotland, Agriculture & Horticulture

In the previous chapter, we examined the expected behavioural responses from business owners to the changes to BPR and APR. Building on that, this section explores how those behaviours might influence economic activity and growth. We examine various impact channels including investment, headcount, and turnover, while also considering other potential responses such as shifts in ownership composition. The theory of change underpinning this chapter is presented in Figure 9. • The UK could potentially lose 208,500 FTE jobs by April 2030 because of reduced activity attributable to the changes in BPR and APR. More than half of these job losses (122,100) will occur before the changes come into force in April 2026. • While the Exchequer expects to raise to raise £1.8 billion in tax revenue by 2030 from the policy change, our estimates indicate the dampening of activity will lead to a net fiscal loss of £1.9 billion in this period. 3. THE IMPACTS ON THE UK ECONOMY AND PUBLIC FINANCES Having collected data from 4,147 family businesses and farms on their behavioural responses to the changes to BPR and APR, CBI Economics modelled the potential economic and fiscal impacts of the policy changes. Primary survey data was integrated with additional secondary data collected from official and third-party sources. Using bespoke in-house economic and fiscal models, CBI Economics applied this data to forecast the total economic impacts in Gross Value Added (GVA) and Full Time Equivalent (FTE) jobs, along with net fiscal impacts to the Exchequer. 1 As family businesses and farms act to mitigate the impact of changes to BPR and APR, responses are expected to be front-loaded ahead of April 2026, as many accelerate decisions like restructuring, gifting assets, or pausing investment. The modelling results indicate: • Reduced activity will lead to a loss in GVA of £14.8 billion over the next five years. Of this, £6.5 billion is associated with the initial activity of family businesses, with the remainder in the supply chain across the economy.

1 Whilst reduced investment will undoubtedly feed into reduced output, the research did not analyse investment individually here. The Input-Output model will pick up this effect to some extent, however it will not fully encompass the further impacts of deferred and reduced business investment on growth more broadly; these are likely to be significant.

Figure 9: Theory of change

Increase tax revenue

Increase in UK economic activity

Net economic & fiscal impact

Reduced investment

Reduced headcount

Increased taxburden on businesses andfarms dueto increase in costof succession

Changes to BPR and APR come into force

Reduced turnover

Decrease in UK economic activity

Partial/full sale of business

Reduced stability

Source: CBI Economics Survey (2025)

As an input into economic impact modelling, our subsequent analysis of GVA, jobs and fiscal impacts focuses only on the reduced turnover of family-owned businesses. It does not analyse the impact of reduced investment or headcount by family-owned business. This is because turnover reflects the total output of goods and services a business sells, whereas investment represents only a subset of business activity.

Reduced family business activity due to BPR change will lead to a £13.4 billion loss in GVA over the next five years

Changes in the turnover of family-owned businesses over the next five years formed a key input in this economic modelling. The BPR reforms announced in the Autumn Budget 2024 are expected to see turnover fall by an average of 7.7% , reflecting the operational and structural adjustments required to manage ownership transitions between April 2026 and April 2030. We also anticipate an average 15.8% fall in investment and a 10.1% reduction in employment .

In our previous report on the potential effects of changes to BPR, we projected a £9.4 billion loss in GVA over five years 2 . Our updated analysis – based on a significantly larger sample and accounting for anticipated impacts before April 2026 – indicates that the economic cost is likely to be even greater.

The updated modelling suggests:

• A total GVA loss of £13.4 billion over five years – equivalent to 0.6% of UK GVA in 2022.

• £5.9 billion of the total loss is directly attributable to reduced activity within family businesses, with a wider multiplier effect of 1.28 across the economy, demonstrating impacts across value chains.

• 59% of the total impact is expected to occur between October 2024 and April 2026, driven by adjustments businesses are making ahead of the policy changes.

Figure 10: GVA losses associated with reduced family business activity resulting from changes to BPR (£m, 2024 prices, year by year)

-3,456

-2,000

-5,902

-4,000

-1,334

-956

-6,000

-2,125

-2,278

-8,000

-1,565

-1,632

-604 -433 -962

-10,000

-881 -340 -244 -541

-3,628

-12,000

-14,000

-16,000

Between October 2024 and April 2026

Between May 2026 and April2028

Between May 2028 and April2030

Total

Induced GVA

Initial GVA

DirectGVA

Indirect GVA

Source: CBI Economics Survey (2025)

2 Family Business UK and CBI Economics, (2025). Taxing Family Business Futures: The economic and fiscal implications of reforms to Business Property Relief for UK family businesses. [Accessible here: https://www.familybusinessuk.org/wp-content/uploads/2025/01/FBUK_BPR_HR.pdf]

Reduced family farm activity due to APR change will lead to a £1.4 billion loss in GVA over the next five years

The changes to APR set out in the Autumn Budget are expected to lead to an average 7.5% reduction in turnover, a 15.5% reduction in investment and a 10.6% reduction in the number of employees . These result in a GVA loss over a five-year period of £1.4 billion. Of this, £0.6 billion is directly associated with the activity of family farms. Across the rest of the economy there is a multiplier effect of 2.16, producing significant ripple effects across the rest of the economy. For every £1 in GVA lost from family farm activity, £2.16 of economic activity is lost across the rest of the economy. Similarly to BPR, GVA impacts are front-loaded to the period between October 2024 and April 2026, with 59% of the loss occurring within this period.

Figure 11: GVA losses associated with reduced family farm activity resulting from changes to APR (£m, 2024 prices, year by year)

-264

-200

-451

-168

-400

-141

-287

-600

-261

-800

-241

-120 -76 -64 -118

-1,000

-1,200

-446

-67 -43 -36 -67

-1,400

-1,600

Between October 2024 and April 2026

Between May 2026 and April2028

Between May 2028 and April2030

Total

Induced GVA

Initial GVA

DirectGVA

Indirect GVA

Source: CBI Economics Survey (2025)

The UK could potentially lose 208,500 FTE jobs over the next five years from reduced family business and farm activity

In addition to GVA, we modelled the impact of changes to BPR and APR on employment in terms of FTE jobs. Reduced activity resulting from the changes will lead to the potential loss of 208,500 FTE jobs over the next five years, with 122,100 of these occurring before April 2026. Within this figure, 180,000 FTE job losses are derived from the cap on BPR, which is equivalent to 0.7% of all UK jobs. Almost 90,000 of these arise directly from reduced activities of family-owned businesses, whilst a further 90,100 are lost due to negative impacts within their supply chain and reduced employee spending.

Figure 12: Employment losses associated with reduced family business activity due to BPR changes (FTE jobs, year by year)

-20,000

-52,701

-40,000

-89,988

-60,000

-17,285

-11,810

-80,000

-23,689

-100,000

-29,514

-23,858

-120,000

-20,165

-7,825 -5,346 -10,724

-140,000

-4,405 -3,009 -6,037 -13,430

-160,000

-40,450

-180,000

-200,000

Between October 2024 and April 2026

Between May 2026 and April 2028

Between May 2028 and April 2030

Total

Initial FTE Jobs

Direct FTE Jobs

Indirect FTE Jobs

Induced FTE Jobs

Source: CBI Economics Survey (2025)

Capping APR at £1m will result in more than 28,300 job losses in the farming sector and its supply chains, equivalent to an 8.4% decrease in agriculture sector employment. 13,500 of these losses result directly from the reduced activities of family farms, whilst a further 14,700 are lost due to negative impacts across supply chains and reduced employee spending. Almost 60% of job losses occur before the policy change takes effect, further demonstrating the importance of considering the behavioral change in projecting fiscal impacts.

Figure 13: Employment losses associated with reduced family business activity due to APR changes (FTE jobs, year by year)

-7,958

-5,000

-13,588

-2,766

-10,000

-2,084

-15,000

-3,815

-4,723

-3,602

-20,000

-3,558

-1,252 -943 -1,727

-25,000

-6,514

-2,028

-705 -531 -972

-30,000

Between October 2024 and April 2026

Between May 2026 and April 2028

Between May 2028 and April 2030

Total

Initial FTE Jobs

Direct FTE Jobs

Indirect FTE Jobs

Induced FTE Jobs

There will be a negative fiscal impact from BPR and APR changes of just under £2 billion

In October 2024 the Office for Budget Responsibility set out costings for the expected tax revenue to be raised by the changes to APR and BPR 3 . The Exchequer expects to raise £1.8 billion from family-owned businesses and farms over a five-year period, starting at £231 million in 2026/27, rising to £493 million in 2027/28 and reaching £522 million in 2028/29 and 2029/30. This policy costing accounts for behavioural response but was marked as having a high degree of uncertainty. Through discussions with the family business community about the policy changes, we identified that businesses were exhibiting behavioural changes as soon as the changes were announced rather than waiting until the policy takes effect in 2026. Consequently, we expanded on the research in our previous report to capture the impacts starting from the time of the announcement.

3 Office for Budget Responsibility, (2024). Economic and fiscal outlook – October 2024. Link.

The findings from this report indicate that family businesses and farms have already started to adjust their behaviours in anticipation of the proposed changes to APR and BPR. These changes are expected to reduce economic activity among family-owned businesses and farms, reducing the Exchequer’s tax take via lower production, spending and income-related taxes. CBI-Economics estimate that the changes will result in a fiscal loss of £1.9 billion across the modelling period, with the largest losses occurring ahead of the reforms coming into force in April 2026. Figure 14 presents the negative fiscal impact from BPR changes across the five-year period, starting in 2024/25. Over the next five years, the fiscal gain from the policy is expected to be £1,378m. However, CBI-Economics modelling suggests total fiscal contributions foregone from reduced economic activity will amount to £3,241m, resulting in a net fiscal loss of £1.86 billion. The most significant negative impacts are largely front- loaded in the 2024/25 period and these outweigh the small fiscal gain seen in 2028/29 and 2029/30.

Figure 14: Fiscal losses for the Exchequer due to BPR changes (2024/25 – 2029/30, £m)

£1,000

£500

£0

-£500

-£1,000

Net Fiscal Impact: -£1.86 billion

-£1,500

-£2,000

-£2,500

Year 1

Year 2

Year 3

Year4

Year 5

Net Fiscal Impact

Fiscal Gain

Fiscal Loss

Source: CBI Economics Survey (2025)

Figure 15 demonstrates that reduced economic activity arising from APR changes will lead to a net fiscal loss of £13m. The Government expects a £387m uplift in tax receipts but the analysis indicates this will be nullified by a £400m lowering in receipts as activity declines elsewhere in the economy. In line with the fiscal impacts of removing BPR, the largest fiscal losses are front-loaded to 2024/25.

Figure 15: Fiscal losses for the Exchequer due to APR changes (2024/25 – 2029/30, £m)

£150

£100

£50

£0

-£50

-£100

Net Fiscal Impact: -£13 million

-£150

-£200

-£250

-£300

Before Apr 2026

2026/2027

2027/2028

2028/2029

2029/30

Net Fiscal Impact

Fiscal Gain

Fiscal Loss

Source: CBI Economics Survey (2025)

4. REGIONAL AND LOCAL IMPACTS

Changes to BPR and APR are expected to impact every part of the UK economy

National-level analysis shows that changes to BPR and APR will have widespread impacts. However, local- level data highlights just how significantly communities and supply chains supported by family-owned businesses may be affected. These businesses are often deeply embedded in their local areas – not only providing direct employment, but also sustaining local supply chains, contractors, and services. As a result, the impact extends well beyond individual estates or balance sheets. The regional and constituency level data indicate where the greatest vulnerabilities lie – in areas home to strategically significant firms that have vital community impacts. In some places, these changes risk amplifying regional inequalities and undermining the Government’s objectives of reducing regional inequality and increasing economic resilience. This local lens demonstrates the importance of BPR and APR to the unique business model of family ownership. The cumulative, structural impacts will be felt not just by a few business owners, but by entire communities where these businesses are based – reflected in job losses, reduced investment, and lower economic activity, with very real consequences for opportunity and prosperity. The following tables show the estimated GVA and FTE job losses across UK regions associated with the combined changes to BPR and APR and the top 10 parliamentary constituencies estimated to see the largest change in GVA and FTE jobs relative to that economy.

REGION OF THE UK

CHANGE IN GVA ¬£M®

CHANGE IN FTE JOBS

East Midlands

-£1,068

-17,183

East of England

-£1,532

-22,439

London

-£2,032

-20,063

North East

-£536

-8,479

North West

-£1,596

-23,658

Northern Ireland

-£344

-5,369

Scotland

-£1,216

-16,221

South East

-£2,094

-25,942

South West

-£1,272

-18,655

Wales

-£580

-9,715

West Midlands

-£1,387

-21,927

Yorkshire & the Humber

-£1,204

-18,852

Source: CBI Economics Survey (2025)

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